Explain the four different concepts of the Budget deficit.

Budget deficit refers to the total budget expenditure (both revenue expenditure and capital expenditure) exceeding the total budget receipt (both revenue receipt and capital receipt).

Budget deficit = total expenditure minus total receipt.

There are three different types of budget deficits:

a. Revenue deficit:

● Revenue deficit is the excess of total revenue expenditure of the government over its total revenue receipt.

● Revenue deficit = expenditure minus total revenue receipt.

● It indicates the dis saving of the government because the government has to make up for the uncovered gap.

● It is done by using the capital receipts either by borrowing or through selling its assets.

● The government usually uses its capital receipt to meet the consumption expenditure which leads to an inflationary situation in the economy.

● The two measures to reduce revenue deficit are:

i. The government should reduce all its un productive expenditure.

ii. The government should increase its revenue from various tax and nontax revenue sources.

b. Fiscal deficit:

● The fiscal deficit is the excess of total expenditure over total receipt of the government excluding borrowing.

● It indicates the capacity of the government to borrow in accordance with what it produces.

● It is also an indicator of the extent of the government's dependence on borrowing to meet its expenditure requirements.

● This increases the liability of the government to repay the loan along with the interest which leads to an increase in the revenue deficit.

● The government borrows either from the central bank or from the governments of the other country.

● This leads to an increased dependence on others.

● Borrowing from foreign countries leads to economic and political interference which increases the economic slavery of the government.

● The government not only has to pay the loans but they also have to pay the amount in interest which increases the financial burden.

● The payment of the interest increases the revenue expenditure of the government which leads to increase in the revenue deficit. This vicious circle is called a debt trap.

c. Primary deficit:

● The primary deficit is the fiscal deficit minus interest payment.

● It is an indicator of the borrowing requirement of the government to meet the expenditure other than the interest payment on earlier loans.